Ireland braced for fresh austerity budget

Ireland unveils a fresh austerity budget this week as the indebted nation looks to claw back 3.8 billion euros via spending cuts and tax hikes, with its recovery threatened by the eurozone crisis. The government will on Monday announce cuts to welfare and education spending worth 2.2 billion euros, a day before Finance Minister Michael Noonan gives details of tax hikes aimed at raising an extra 1.6 billion euros in 2012. Under the fiscal-raising plans, Ireland is expected to unveil a 2.0-percentage point hike in the highest rate of valued added tax on goods and services, to 23 percent. Prime Minister Enda Kenny's government has pledged to slash Ireland's public deficit to 8.6 percent next year and to less than 3.0 percent, the EU ceiling, by 2015, after the country was last year saved by an international bailout. Ireland received an 85-billion-euro ($115-billion) EU-IMF rescue package in November 2010 as massive debt and deficit problems left the eurozone country on the verge of collapse. Under the terms of the rescue, Ireland has already implemented major austerity measures, heaping pressure on families already struggling due to rising unemployment. Goodbody stockbrokers economist Dermot O'Leary said he expects Noonan to meet the 8.6 percent deficit-reduction target also thanks to savings from an EU decision earlier this year to cut the interest rate on Ireland's rescue loans. "That lower interest bill gives him a little bit of scope, a little bit of room for manoeuvre," he said. Amid a deteriorating outlook for the global economy, the Irish government last month slashed its 2012 growth forecast for the country to 1.6 percent from 2.5 percent. Last week the country's leading economic think tank, the Economic and Social Research Institute (ESRI), said Irish gross domestic product (GDP) growth would stand at only 0.9 percent next year. However Ireland is set to show that its economy has grown this year -- its first annual expansion since 2007 -- as robust growth in Irish exports offsets weak domestic demand. "I think exports will (continue to) out-perform the rest of the developed world because of the main sectors that we are situated in, namely pharmaceuticals and IT services," O'Leary said. The analyst expects the domestic economy to contract around 2.0 percent next year as a result of budget consolidation and deleveraging of the economy as consumers repay debts. "It is a much more difficult proposition to meet targets when the international economy is slowing down," O'Leary said. A drop in global trade could meanwhile derail Ireland's plans to meet the terms of its bailout and further impact the average family. Following four austerity budgets in just over three years, the average single-income Irish family has taken a financial hit totalling 423 euros a month, or a 16 percent cut in net pay, according to the Irish Tax Institute. "The capacity for people to bear more pain is running out as we approach an overall tipping point in terms of the money that can be taken from them in tax," said Institute president Bernard Doherty. "The tax element of the last four austerity budgets was almost 4.8 billion euros and the government is now seeking to raise 4.65 billion euros in taxes over the next four budgets," he added.